Decoder with Nilay Patel
00:32:22 · Nilay Patel
[00:32:22] S4: Yeah. I'm curious about the the sports piece of it, in particular the NFL. The NFL just keeps getting more expensive. That that... That's the business they're in. They're gonna keep charging you more money for rights. All the other sports, I think they would like to keep getting more expensive. They maybe don't have the leverage the NFL seems to have. That made sense in a world of carriage fees, right, where the NFL would say, we're gonna cost a lot of money. We're gonna go out to broadcast networks, and then the broadcast networks are gonna turn around their distributors and say, well, if you want the NFL games, you gotta pay what they cost plus our margin, And then my price all the way at the bottom at the consumer end would go up, my cable bill would go up. And I think everyone understands that that is the thing that happened for years and years and years. That is unbundled. Right? You are describing the unbundling of that entire business model, but the price of NFL rights, for example, keeps going up. And a lot of analysts I talk to are basically saying, look. At some point, Amazon and Apple are the only companies that are gonna have enough money to buy the NFL package. And an NBCU standing alone outside of the Comcast revenue that would would keep it afloat is gonna have to raise rates to some extraordinarily high level just to compete with the big tech giants that own their own streaming platforms and run them in a loss. That is very challenging mathematics. Right? If your business is based on live, you've got a stand up live events that people definitely wanna watch. Sports is at the top of that list. The sports leagues know that, and they're gonna keep coming at you with higher and higher demands. How do you manage that without making the price of Peacock skyrocket?
00:33:54 · Matt Strauss
[00:33:54] S5: Well, I I think that, you know, if you look at our strategy, again, we're looking at this across our entire portfolio and our entire ecosystem. I think one of the benefits that we bring to the table with the leagues, as I mentioned, is we're not looking to just make the content available on streaming or on broadcast. It's both. And that allows us to grow reach, which is a good thing for the leagues. And I think that all that has to be taken into consideration when they're looking at how they want to go to market with their rights. For the NFL, we've got a very long history with the NFL. They're a strong partner of ours. Sunday night football has been number one on NBC for fifteen consecutive years. But we also entered into an eleven year arrangement with the NBA. As I mentioned, I think they've been very happy with the relationship. We've been happy with the first year of the NBA relationship because it grew audience for us. It allowed us to manage how we're thinking about having a weekly cadence of premium sports on Sundays with the NFL, NBA, and now MLB. It's allowed us to grow more advertising. And so when the flywheel works, it allows us to partner with the leagues in, I think, creative ways. And so everything has to be taken into evaluation when you're looking at this, whether it's sports or whether it's entertainment programming. But I think of it like a mutual fund. What's the content that's going to drive acquisition? What's the content that's going to drive engagement? What's the content that's going to drive frequency? Sometimes you have content and the answer to that question could change depending on where you are in the lifecycle of your business. And so you might have certain content that's a loss leader, but it's adding value elsewhere in the portfolio. And so that's generally how we're evaluating when we're going into a rights negotiation. I'll give you another example of this. And so when we were launching Peacock, we entered into a relationship with the WWE. And the WWE, we thought, would be a really great addition to Peacock for a few reasons. One was I wanted to have something that was on every month. And they've got their premium live events, which they do every month. And so that would create a cadence, which we thought was critical in streaming, which is how do you get somebody to open up your app?
00:36:18 · Matt Strauss, Nilay Patel
How do you build habituation? And so the WWE, we thought, could do that with premium live events. They also had a huge catalog of WWE programming, gave us more tonnage. And we also were able to look at the addressable market for the WWE, estimate what percent we thought we could penetrate, and then we know the CLV of a customer. And so that you can calculate what's the return on the investment when you're going to go after a certain rights package. [00:36:45] S4: So I'm sorry, what's the CLV for the listener? [00:36:48] S5: Like what's the lifetime value? What you're really looking at, what's the ARPU multiplied by the number of months that you retain a customer before they would churn? And so that's generally like the formula that you would look at. And so the reason I'm kind of laying it out this way is you're making decisions that are longer term. Like you're thinking about how does this fit into a broader portfolio view. And in the case of the WWE, it was actually, I think, a real win win. We acquired subscribers through the WWE. I think the WWE was happy with it because we were also able to bring in, new viewers to sample and experience the WWE. But then when that deal came up for renewal, the rates, the license fees went up pretty dramatically. And they ended up going to another streaming service. But we were actually Okay with that because what we had really focused on was how do we take those WWE viewers and habituate them. And what we found was WWE fans, they really like Fast and the Furious. They really like Yellowstone. They really like they like other stuff.
00:36:48 · Matt Strauss, Nilay Patel
[00:36:48] S5: Like what's the lifetime value? What you're really looking at, what's the ARPU multiplied by the number of months that you retain a customer before they would churn? And so that's generally like the formula that you would look at. And so the reason I'm kind of laying it out this way is you're making decisions that are longer term. Like you're thinking about how does this fit into a broader portfolio view. And in the case of the WWE, it was actually, I think, a real win win. We acquired subscribers through the WWE. I think the WWE was happy with it because we were also able to bring in, new viewers to sample and experience the WWE. But then when that deal came up for renewal, the rates, the license fees went up pretty dramatically. And they ended up going to another streaming service. But we were actually Okay with that because what we had really focused on was how do we take those WWE viewers and habituate them. And what we found was WWE fans, they really like Fast and the Furious. They really like Yellowstone. They really like they like other stuff. [00:38:01] S4: I'm sorry. Did you need to open the spreadsheet and figure that out? Or did you just interpret
00:38:01 · Nilay Patel, Matt Strauss
[00:38:01] S4: I'm sorry. Did you need to open the spreadsheet and figure that out? Or did you just interpret [00:38:05] S5: Well, that we have assumptions, but you know, you have to test you have to test these hypotheses. And so the elegance of this strategy for us was that what you're really calculating is that, Okay, well, if I don't renew this content, how many subscribers can I retain? And we were able to retain the majority of those subscribers and we ended up licensing a much smaller package of WWE programming. We were able to retain those subscribers because we had habituated them into other content. And then we took the money that we were utilizing to license the Premium Live Events and we reallocated it into other parts of the portfolio. And so that's the mindset in how we are approaching these deals. And if the economics make sense, they make sense. If the economics don't make sense, then we look to then how do we reallocate that investment into other parts of the portfolio where we try to find a comparable or better return. And so it's an evolving, like living, breathing strategy and approach in how we go to market when we're looking at any type of content, whether it's sports or entertainment.
00:39:17 · Nilay Patel
[00:39:17] S4: You've brought me to the other Decoder question. I think you've talked a lot about structure already. The other question I ask everybody is how they make decisions. You oversee a group called the decision sciences group. You are describing a lot of decisions that take time to pay off. Right? This is a strategy you set ages ago, the bet on live. You built a platform around it. You're seeing the flywheel spinning now. How do you make decisions? What's your framework and how does that decision sciences group play into it?